Have you ever imagined starting your own bitcoin exchange? Soon, Vancouver-based Bex.io will make that possible by deploying exchange functionality under a Software as a Service (SaaS) model.
By removing the technical complexity of running a bitcoin exchange, Bex.io will allow entrepreneurs to focus on the financial services aspects of the exchange business, such as payment processing and capital-intensive regulatory compliance. Bex.io could potentially commoditize the bitcoin exchange market, allowing companies to focus on customer service and the breadth of their currency offerings.
Three years ago, the provision of bitcoin exchange services could have emerged in one of two ways. Either the established foreign exchange platforms, such as MetaTrader 4, would add a hook for digital currencies like bitcoin (which did not occur due to low awareness and currency definitions around ISO 4217) or the trading capacity would evolve organically driven largely by players not that familiar with financial trading. The Bex platform is an advancement upon the latter model.
So far, most bitcoin exchanges have lacked operational support for a wide variety of payment methods and national currencies. Additionally, a plug-and-play exchange architecture in the cloud should allow for more rapid deployment of new bitcoin currency pair trading, like exchanging bitcoins for euros or pounds sterling.
With the company's first exchange launch planned in the Asia-Pacific region, the Bex platform will evolve as more partners are integrated into the network. Bex.io expects to release a stripped-down version of its platform this summer. The system uses a subset of the de facto industry standard for the real-time electronic exchange of securities transactions (FIX 5.0).
Bex.io was born after providing a bespoke exchange for a client and then decided to make it a resalable service, CoinDesk reports. The project has funding from two customers who are eager to see the service flourish.
Bex.io’s strengths include security and performance. The system will operate with hot data sets held completely in-memory, speeding up transactions. Processing a day's worth of orders in a matter of minutes, the architecture is optimized for order execution speed, back pressure control and distribution of work. For security, the company plans cold storage management features, independent audits by a third-party penetration tester, and distributed hosting to reduce denial-of-service issues.
According to Jesse Heaslip, one of the Bex.io founders, "the goal is to have 5-10 exchanges operational by the end of Q1 2014. We have had about 1,500 people sign up to operate a Bex exchange."
There will be long-term opportunities for "linking the exchanges to create a global liquidity pool and leveraging the data we will have access to as a result of managing the exchanges," Heaslip says.
With enough exchanges contributing liquidity, the Bex platform starts to resemble a wholesale clearing house for exchanges, which is a positive factor for market depth and price discovery. However, Bex.io will have to be vigilant about distributing the network across redundant systems and geographies and also protecting themselves from not becoming a single point of failure.
Indeed, by democratizing and decentralizing the exchange business itself, the Bex platform has elevated core functionality to a higher wholesale level. If successful, Bex.io may not be a single point of failure on the technical side, although that doesn't remove similar political jurisdictional risk for the associated, and centralized, legal entity.
Jon Matonis is an e-money researcher and crypto economist focused on expanding the circulation of nonpolitical digital currencies. His career has included senior posts at Sumitomo Bank, Visa, VeriSign and Hushmail. Currently, he is executive director of the Bitcoin Foundation. Follow him on Twitter @jonmatonis.